Chegg(CHGG) - 2025 Q2 - Quarterly Results

Executive Summary & Business Outlook Chegg reported Q2 2025 results exceeding guidance, with revenue and subscribers decreasing, while providing Q3 outlook and outlining strategic shifts towards AI-driven efficiency and skills-focused growth engines Second Quarter 2025 Highlights Chegg reported Q2 2025 financial results exceeding guidance, with total net revenues decreasing 36% year-over-year and subscription services revenues decreasing 39%, resulting in a net loss of $35.7 million but a non-GAAP net income of $10.8 million and a 40% decrease in subscribers Second Quarter 2025 Financial Highlights | Metric | Value | Change YoY | | :-------------------------- | :---------- | :--------- | | Total Net Revenues | $105.1 million | -36% | | Subscription Services Revenues | $89.7 million | -39% | | Gross Margin | 66% | - | | Non-GAAP Gross Margin | 68% | - | | Net Loss | $35.7 million | - | | Non-GAAP Net Income | $10.8 million | - | | Adjusted EBITDA | $23.1 million | - | - Subscription Services subscribers decreased to 2.6 million, a 40% decrease year-over-year[7] Third Quarter 2025 Business Outlook For Q3 2025, Chegg anticipates total net revenues between $75 million and $77 million, subscription services revenues between $67 million and $69 million, a gross margin of 56-57%, and adjusted EBITDA in the range of $7 million to $8 million Third Quarter 2025 Guidance | Metric | Range | | :-------------------------- | :---------------- | | Total Net Revenues | $75 million to $77 million | | Subscription Services Revenues | $67 million to $69 million | | Gross Margin | 56% to 57% | | Adjusted EBITDA | $7 million to $8 million | CEO's Strategic Overview CEO Nathan Schultz highlighted a strong Q2 exceeding guidance, an ongoing strategic review, and a focus on AI implementation to transform Chegg Study for efficiency and product differentiation, while evolving into a skills-focused organization with Busuu and Skills as future growth engines, alongside significant expense savings - Chegg had a strong Q2, exceeding guidance, and is actively engaging in a strategic review process and company transformation[3][11] - The company remains focused on implementing AI to transform Chegg Study, making it a more efficient business, and is evolving to be a skills-focused organization with Busuu and Skills as future growth engines[3][12] - Chegg identified an additional $17 million in CapEx and expense savings for 2026 and is on track to achieve previously announced non-GAAP expense savings of $165-$175 million in 2025 and $110-$120 million in 2026[11] CFO's Financial Overview CFO David Longo confirmed Q2 performance exceeded guidance with disciplined cost management and identified additional $17 million savings for 2026, noting a 36% YoY decrease in total revenue and 40% decline in subscribers, yet highlighting increased retention and ARPU, and successful NYSE compliance regain - Q2 performance exceeded guidance on both revenue and adjusted EBITDA, with continued prioritization of disciplined cost management and identification of an additional $10 million in operating expense savings and $7 million in CapEx savings for 2026[24] Q2 2025 Revenue and Subscriber Performance | Metric | Value | Change YoY | | :-------------------------- | :---------- | :--------- | | Total Revenue | $105 million | -36% | | Subscription Services Revenue | $90 million | - | | Subscribers | 2.6 million | -40% | - Despite traffic trends, retention and ARPU increased year over year, demonstrating student value in the service. The company successfully cured its stock price deficiency and regained compliance with NYSE's price listing requirements[25][32] Strategic Initiatives & Business Segments Chegg is undergoing a strategic review, transforming into a skills-focused organization with Busuu and Skills as growth engines, while leveraging AI to enhance Chegg Study and achieve operational efficiency Strategic Review Process Chegg is undergoing a comprehensive strategic review with advisors to evaluate internal operations and market landscape, aiming to maximize long-term shareholder value by exploring options including acquisition, a go-private transaction, or remaining a public standalone company, with ongoing engagement with select parties - Chegg is undertaking a comprehensive evaluation of internal operations and the broader market landscape as part of its strategic review process to maximize long-term shareholder value[10] - The company is exploring a range of outcomes, including being acquired, undertaking a go-private transaction, or remaining as a public standalone company, and continues to engage with a select group of parties[10] Company Transformation and Growth Engines Chegg is transforming into a skills-focused organization, investing in language learning (Busuu) and workplace readiness/upskilling (Skills) as primary growth engines, while Chegg Study continues to serve millions of students and generate cash, made more efficient through AI - Chegg is evolving into a skills-focused organization, investing in language learning (Busuu) and workplace readiness and upskilling (Skills) as its primary growth engines for the future[12] - Chegg Study, the core academic product, will remain a valuable service for millions of students and generate meaningful cash to support investments in Busuu and Skills, while becoming less expensive to run thanks to AI[11][12] Busuu (Language Learning) Busuu, targeting a $3.2 billion market of 78 million adult learners, achieved a 15% year-over-year revenue increase in Q2, with 6% B2C and 39% B2B growth, and is expected to reach approximately $48 million in revenue in 2025 and be adjusted EBITDA positive by Q1 2026 - Busuu targets an enormous market of 78 million success-seeking learners with a $3.2 billion market opportunity, and is expected to achieve approximately $48 million of revenue in 2025 and be adjusted EBITDA positive by Q1 2026[13][15] Busuu Q2 2025 Revenue Growth | Segment | Year-over-year Revenue Increase | | :------ | :------------------------------ | | Total Busuu | 15% | | B2C | 6% | | B2B | 39% | - Busuu's B2C focus in H2 will be on product innovation with continued emphasis on AI for personalization, while the B2B business will expand its offering with Learning Pathways and has significant traction in the DACH region[18] Chegg Skills (Workplace Readiness & Upskilling) Chegg Skills addresses a $40 billion market for workplace readiness and upskilling, seeing a 16% quarter-over-quarter increase in enrollments and 11% in monthly active users after product modernization, with Q3 priorities including B2B growth and distribution partnerships, aiming for profitability and double-digit revenue growth in 2026 - The Skills business focuses on the $40 billion market for workplace readiness and upskilling for professional adults, prioritizing AI programs, career fundamentals, and professional upskilling[15][16] Chegg Skills Q2 2025 Performance | Metric | Quarter-over-quarter Increase | | :-------------------- | :---------------------------- | | Enrollments | 16% | | Monthly Active Users | 11% | - Q3 priorities for Skills include growing direct B2B presence and deepening relationships with distribution partners like Guild. The business is optimistic about achieving profitability and positive double-digit revenue growth in 2026[17][19] Chegg Study (Core Academic Product) Chegg Study, transformed by AI into a personalized learning coach, continues to serve millions of students, showing a 23% lift in learning perception, 17% lift in intent to use, and 117 basis points increase in monthly retention in Q2, with future plans including a smart planning tool, voice interface, and expanded business-to-institution pilot program - Chegg Study has been transformed by AI into a personalized learning coach, with new features like Solution Scout and AI-powered practice and flashcard generators[20] Chegg Study Student Feedback & Retention (Q2 2025) | Metric | Change | | :------------------------------------ | :----- | | Lift in "Chegg helped me learn today" | 23% | | Lift in students intending to use Chegg in next 30 days | 17% | | Monthly retention rate | Up 117 basis points | - New core capabilities for Chegg Study in September include a smart planning tool and a voice interface. The business-to-institution pilot program has expanded from 5 to 23 active programs[21][27] Detailed Financial Results This section provides a detailed overview of Chegg's condensed consolidated balance sheets, statements of operations, and cash flows for the reported periods, highlighting key financial changes and performance metrics Condensed Consolidated Balance Sheets As of June 30, 2025, Chegg's total assets decreased to $404.45 million from $868.95 million at December 31, 2024, primarily due to reductions in cash and investments, while total liabilities decreased to $246.60 million from $675.97 million, and total stockholders' equity decreased to $157.86 million Condensed Consolidated Balance Sheets (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :---------------------------------- | :------------ | :---------------- | | Total assets | $404,453 | $868,951 | | Cash and cash equivalents | $36,825 | $161,475 | | Short-term investments | $48,815 | $154,249 | | Long-term investments | $28,474 | $212,650 | | Total liabilities | $246,597 | $675,970 | | Current portion of convertible senior notes, net | $62,516 | $358,605 | | Total stockholders' equity | $157,856 | $192,981 | Condensed Consolidated Statements of Operations For the three months ended June 30, 2025, Chegg reported total net revenues of $105.12 million, a decrease from $163.15 million in Q2 2024, with gross profit decreasing to $69.64 million, and a net loss of $35.66 million, a substantial improvement from $616.88 million in Q2 2024 primarily due to reduced impairment expense Condensed Consolidated Statements of Operations (in thousands) - Three Months Ended June 30 | Item | 2025 | 2024 | | :---------------------------------- | :------- | :-------- | | Net revenues | $105,120 | $163,147 | | Gross profit | $69,642 | $117,736 | | Total operating expenses | $106,100 | $602,743 | | Loss from operations | $(36,458) | $(485,007) | | Net loss | $(35,663) | $(616,884) | | Net loss per share, basic and diluted | $(0.33) | $(6.01) | - The significant improvement in net loss from $(616,884) thousand in Q2 2024 to $(35,663) thousand in Q2 2025 was largely due to a substantial reduction in impairment expense, which was $481,531 thousand in Q2 2024 and $0 in Q2 2025[63] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities was $19.69 million, a decrease from the prior year, while investing activities generated $272.18 million, and financing activities resulted in a net cash outflow of $417.14 million primarily due to convertible senior note repayment, leading to a net decrease in cash of $124.78 million Condensed Consolidated Statements of Cash Flows (in thousands) - Six Months Ended June 30 | Item | 2025 | 2024 | | :------------------------------------------ | :------- | :-------- | | Net cash provided by operating activities | $19,686 | $67,545 | | Net cash provided by (used in) investing activities | $272,180 | $(64,096) | | Net cash used in financing activities | $(417,138) | $(5,635) | | Net decrease in cash, cash equivalents and restricted cash | $(124,781) | $(2,491) | | Cash, cash equivalents and restricted cash, end of period | $39,578 | $135,485 | - The significant net cash outflow from financing activities in 2025 was primarily driven by the repayment of convertible senior notes totaling $416,492 thousand[65] Non-GAAP Financial Measures This section details Chegg's use of non-GAAP financial measures, providing reconciliations for net loss to adjusted EBITDA, GAAP to non-GAAP metrics, and net cash to free cash flow, including forward-looking projections Use of Non-GAAP Measures Chegg uses various non-GAAP financial measures, including adjusted EBITDA, non-GAAP gross margin, and non-GAAP net income, to supplement GAAP results by excluding items like share-based compensation, amortization of intangibles, and restructuring charges, which management believes are not indicative of core business performance, to provide a clearer view of operating results and facilitate period-over-period comparisons - Chegg uses non-GAAP financial measures to supplement GAAP results, providing meaningful supplemental information by excluding items not indicative of core business, operating results, or future outlook[39][40] - Non-GAAP adjustments typically exclude share-based compensation expense, amortization of intangible assets, acquisition-related compensation costs, restructuring charges, impairment expense, and other non-recurring items[39][41][42][47][49] Reconciliation of Net Loss to EBITDA and Adjusted EBITDA For Q2 2025, Chegg reported a net loss of $35.66 million, which, after adjustments for various non-cash and non-recurring items, resulted in an Adjusted EBITDA of $23.11 million, representing a decrease from $44.10 million in Q2 2024 Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (in thousands) - Three Months Ended June 30 | Item | 2025 | 2024 | | :---------------------------------- | :------- | :-------- | | Net loss | $(35,663) | $(616,884) | | EBITDA | $(18,173) | $(458,182) | | Share-based compensation expense | $7,912 | $18,047 | | Restructuring charges | $18,922 | $6,728 | | Loss contingency | $7,500 | — | | Impairment of strategic equity investment | $6,000 | — | | Impairment of lease related assets | $3,004 | $2,189 | | Impairment expense | — | $481,531 | | Adjusted EBITDA | $23,106 | $44,096 | Reconciliation of GAAP to Non-GAAP Financial Measures This section provides detailed reconciliations for various GAAP metrics to their non-GAAP counterparts for Q2 2025 and Q2 2024, showing, for example, GAAP gross profit of $69.64 million in Q2 2025 reconciling to a non-GAAP gross profit of $71.59 million (non-GAAP gross margin of 68%), and non-GAAP net income of $10.80 million compared to a GAAP net loss of $35.66 million Reconciliation of GAAP to Non-GAAP Financial Measures (in thousands) - Three Months Ended June 30, 2025 | Item | GAAP | Adjustments | Non-GAAP | | :---------------------------------- | :------- | :---------- | :------- | | Cost of revenues | $35,478 | $(1,948) | $33,530 | | Gross profit | $69,642 | $1,948 | $71,590 | | Gross margin % | 66% | - | 68% | | Operating expenses | $106,100 | $(42,466) | $63,634 | | Loss from operations | $(36,458) | $44,414 | $7,956 | | Net loss | $(35,663) | $46,464 | $10,801 | | Net loss per share | $(0.33) | $0.43 | $0.10 | Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow For the six months ended June 30, 2025, net cash provided by operating activities was $19.69 million, and after deducting purchases of property and equipment of $15.90 million, free cash flow for the period was $3.79 million, a significant decrease from $21.73 million in the same period of 2024 Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow (in thousands) - Six Months Ended June 30 | Item | 2025 | 2024 | | :------------------------------------------ | :------- | :-------- | | Net cash provided by operating activities | $19,686 | $67,545 | | Purchases of property and equipment | $(15,895) | $(45,817) | | Free cash flow | $3,791 | $21,728 | Reconciliation of Forward-Looking Net Loss to EBITDA and Adjusted EBITDA For the three months ending September 30, 2025, Chegg projects a net loss of $24.20 million, which, after adjustments for various items, results in an estimated forward-looking Adjusted EBITDA of $7.50 million (midpoint of $7 million to $8 million guidance) Reconciliation of Forward-Looking Net Loss to EBITDA and Adjusted EBITDA (in thousands) - Three Months Ending September 30, 2025 | Item | Value | | :-------------------------- | :------ | | Net loss | $(24,200) | | Interest expense, net | $100 | | Provision for income taxes | $700 | | Depreciation and amortization expense | $15,200 | | EBITDA | $(8,200) | | Share-based compensation expense | $7,900 | | Other income, net | $(1,200) | | Restructuring charges | $9,000 | | Adjusted EBITDA | $7,500 | Corporate Information This section provides an overview of Chegg as a company, details regarding forward-looking statements, and information on accessing conference calls and investor relations resources About Chegg Chegg is a student-first connected learning platform providing individualized, on-demand, 24/7 learning support, leveraging AI-powered academic support and subject matter experts to help students build essential academic, life, and job skills, operating as a publicly held company based in Santa Clara, California - Chegg provides individualized learning support to students 24/7, powered by AI and a network of subject matter experts, to help them build academic, life, and job skills[38] Forward-Looking Statements The press release contains forward-looking statements regarding strategic alternatives, restructuring plans, efficiency improvements, revenue diversification, AI impact, and Q3 2025 guidance, which are subject to known and unknown risks, uncertainties, and changes in circumstances, including AI technology effects, competition, and litigation, that could cause actual results to differ materially - The press release contains forward-looking statements regarding strategic alternatives, restructuring, business efficiency, revenue diversification, AI impact, and Q3 2025 guidance[59] - These statements are not guarantees of future performance and are subject to uncertainties, risks, and changes in circumstances, including the effects of AI technology, competition, and litigation, which could cause actual results to differ materially[59] Conference Call and Webcast Information Details for accessing the Q2 2025 earnings call are provided via dial-in or live webcast on Chegg's Investor Relations website, with an audio replay available from August 5 to August 12, 2025, and an audio archive accessible online - The earnings call can be accessed via dial-in or a live webcast on Chegg's Investor Relations website (https://investor.chegg.com)[34](index=34&type=chunk) - An audio replay will be available from August 5 to August 12, 2025, and an audio archive will also be accessible on the investor relations website[35] Use of Investor Relations Website for Regulation FD Purposes Chegg utilizes its Investor Relations website (https://investor.chegg.com) as a primary channel for disclosing material non-public information and complying with Regulation FD obligations, advising investors to monitor this website in addition to press releases, SEC filings, and public conference calls/webcasts - Chegg uses its Investor Relations website (https://investor.chegg.com) for disclosing material non-public information and complying with Regulation FD[36] - Investors should monitor the IR website in addition to press releases, SEC filings, and public conference calls/webcasts[36]